11 Jul The ERCOT Market of Today Will Not Be the Same Tomorrow

Sources for power generation in the state of Texas are changing. As many in the Electric Reliability Council of Texas (ERCOT) market already know, the next 15 years should be a slow death for coal powered generation. The 2016 Long-Term System Assessment (LTSA) conducted by ERCOT highlights the market shift from coal utilization to natural gas, solar and other sources. A market shift like this will create challenges—such as having enough reserves to meet unexpected spikes in demand.

Current Trends in ERCOT Capacity 2017 vs. 2031

This challenge may not only affect power generators and utilities, but also could have a significant impact on the state of Texas’ retail market. The Distributed Resource Energy & Ancillaries Market (DREAM) Task Force was established to investigate and develop new procedures and solutions to resolve any and all unbeknown issues. However, the DREAM team was recently disbanded by ERCOT so issues may remain unknown or unresolved.

For retailers that operate in the state of Texas, many questions are arising. Questions include future rates, reliability and other potential impacts these changes will create for retailers and their customers. The most pressing challenge that can potentially impact rates is the risk of shortages between 7 pm and 10 pm. During those peak demand hours, the quantity of solar power generation decreases and, in turn, reduces the overall capacity of the grid. The inability to guarantee a reliable supply of energy to the grid when customers need it most presents a challenge that Texas must address.

One possible solution to the challenge mentioned above is enhanced energy storage. Efficient utility-scale energy storage is not yet available. While the amount of energy storage is increasing in the US every year, several hurdles including high costs, low technology maturity and low energy prices have made this a slow growth initiative. In order for solar power to continue growing its share of electricity generation, it is imperative that Texas, and other solar dependent states, partner with energy storage pioneers to enhance energy storage. Without utility-scale storage solutions, a reliance on solar power could create supply fluctuations that result in price spikes. This capacity mix dilemma is currently an issue in California and other markets that use a high quantity of solar generation. States have created the industry term “Duck Curve” to describe the dilemma of having a sudden increase in unserved capacity late in the day. Some in the industry have made the argument that other power generation sources like natural gas and nuclear will be able to pick up the slack during those time periods, but these sources may still cause price volatility.

Texas is unique because it is the likely to be the first state in the Southwest to run into the issues highlighted above. While surrounding states utilize solar and natural gas to support their electric grids, they do not have a competitive deregulated electric market like Texas. Further, most SW states do not have nearly as much solar capacity as Texas; however, they could run into the same issues if their solar capacity increases. Future reliability issues in these states will not have nearly as great an impact on the retail energy market because they are not players in a deregulated market.

This serves as a warning for deregulated states across the country that are working to add additional solar supply to the electric grid: take action to prepare your business for the future. And, if you are an electric marketer in the state of Texas, there are several ways to prepare your business and potentially impact ERCOT’s future outlook.

Be proactive: businesses that follow ERCOT policies and attend LTSA update meetings will have a better idea of how these organizations are adjusting for the future and if any solutions have been discovered to handle the problems highlighted.

Review the electric plans you offer customers each year as well as your pricing history from the previous years.

The retail energy market is being restructured through legislation and regulations to prepare for issues like those experienced in Texas. Hopefully such actions will enhance the electric grid and prepare the overall market for upcoming shifts in power generation sources.